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U.S. and British Regulators
Do Battle Over Phone Plan

Updated Dec. 5, 1996 12:01 a.m. ET

THE NEW YEAR could ring in some major changes for trans-Atlantic phone charges.

But not until market-access issues are resolved.

U.S. and U.K. regulators are meeting in London this week to work out details of a U.S. plan to bring down international phone charges. Proposed last February and adopted by the U.S. Federal Communications Commission last week, the plan would relax rules on international phone traffic between the U.S. and those countries it deems competitive world-wide.

Changes on the U.K.-U.S. route were to be among the first implemented, allowing international carriers to freely negotiate the terms under which they complete calls, leading to bigger savings for consumers. At the moment, though, the only activity is a war of words between regulators.

At issue for the U.S. is whether the U.K., which currently is one of the most open phone markets in Europe, is liberal enough. Meanwhile, U.K. regulators accuse their U.S. counterparts of needlessly holding up increased competition on international routes.

U.K. government officials say they are furious that U.S. regulators are delaying approval of license applications from British phone companies who want to carry traffic from the U.S. to Britain. The U.K. is set to license 22 new providers of international services this month, including
AT&T
. But the U.K. government won't allow AT&T or other U.S. phone companies to bypass British operators for the completion of international calls until
British Telecommunications
and
Cable & Wireless
are granted equal access to the U.S. market.

The FCC on Nov. 27 decided to grant Cable & Wireless International what it has long sought: the right to carry traffic between the U.S. and Britain without having to pass the traffic to a third carrier. But C&W still doesn't have approval for its application for cable landing rights in the U.S., which would allow it to have end-to-end control of its costs. FCC officials said this is the first time that a foreign carrier has applied for 100% ownership of a cable, raising some novel issues. It expects to take action on the application early next year.

U.K. regulator and industry sources also have said British Telecom's bid to acquire
MCI Communications
is being held hostage until the U.S. government can squeeze more concessions from the U.K. government. But FCC officials reply that they only received BT's application to buy MCI on Tuesday, and that it's premature to link any particular concessions to the BT-MCI deal.

THOSE OFFICIALS did say that the U.S. government wants Britain to revisit the issue of equal access, an industry term for the pre-selection of competing long-distance and international carriers.

The U.S. wants consumers inside the U.K. to be able to dial up new entrants as easily as they dial BT, according to an FCC official.

Indeed, that argument got a boost with the release this week a European Commission discussion paper on the topic. The Commission recommends that all EU countries adopt the equal-access pre-selection system used in the U.S. The discussion paper says carrier pre-selection using a simple nondiscriminatory mechanism should be available in all 15 European Union countries by January 1998, the date that Europe's phone market will be opened to competition.

That would require an overhaul of the U.K. system, with major implications for the U.S. companies that have sunk $7 billion into phone infrastructure on the understanding that they would not have to give a free ride to competitors.

Right now cable companies aren't required to supply alternative access. If they were, they argue, it would increase their costs and decrease the incentive to build competing infrastructure. Only dominant operators, such as BT, are required to give access to competing long-distance operators. Both for international and long-distance calls inside Britain, callers on the BT network use cumbersome three- or four-digit codes and in some cases personal identification numbers to select an alternative provider, like AT&T.

The rationale for the U.K. approach, worked out in the 1980s, is to encourage carriers to compete at the local level. Consumers choose a local carrier and get their long-distance and international service through that carrier.

Critics argue that this approach limits competition because most areas of the UK will be served by a maximum of two or three local operators who will control the whole telecommunications supply chain.

U.K. regulators, who say they plan to resist pressure from the FCC and actively oppose the Commission's recommendation, argue that the U.K. approach works better than the U.S. system. "There are seven million households in the U.K. that have the choice of using BT or others for local access, whereas there is no competition on local access in the United States," said one U.K. regulator who declined to be named. "We won't budge on this one."

DEPENDING ON who you talk to, a treaty being debated by the World Intellectual Property Organization in Geneva this week will either stunt or stimulate the development of the Internet.

WIPO, which operates under the auspices of the United Nations, wants to update and extend international copyright law to the digital environment. On one side are the European Telephone Network Operators association and the Ad Hoc Copyright coalition, a U.S.-based group of on-line and Internet providers that includes AT&T, MCI,
Netscape
,
America Online
and the U.S. telephone Association.

On the other side are publishers, movie studios,
Microsoft
and music industry heavyweights such as Warner Music, Polygram and Sony Music.

The telephone companies fear that a proposed new international treaty would make them liable for unknowingly transporting and reproducing copyrighted material. They claim it is "technologically unfeasible and economically unreasonable" to examine the content of tens of millions of messages transported over the Internet daily. "It is ludicrous," Timothy Casey, MCI's chief technology counsel, said in an interview. He said Internet providers would be forced to avoid serving countries that signed the treaty or find themselves legally liable for the simple act of routing traffic.

But John E. Frank, senior corporate attorney at Microsoft Europe, says the law would by no means make service providers responsible for all messages, but would help prevent someone from using the Internet to steal and disseminate, say, a subscription-based on-line site. While the telephone industry can't be held responsible for information sent over real-time chats or over electronic mail or posting to unmonitored forums, if access providers are completely off the hook, a company such as Microsoft wouldn't be able to force them to quickly remove copyrighted information from the Internet. "If someone puts the source code to Memphis, our next operating system, on the Internet, we will go after the guy, but we will also want to get it off the Internet," he said.

For the music business, the digital age challenges the concepts of traditional copyright protection. Reproductions of analog copies were usually of poor quality. But digital technology allows the creation of perfect quality copies for mass distribution around the world. The recording industry wants exclusive rights to authorize all commercially significant uses of its works. This would entail extending the exclusive rights of reproduction that currently applies in analogue markets to cover all reproductions in the digital environment. Inadequate protection, the music industry argues, would increase piracy, which currently amounts to $2.1 billion in the analog market.

WIPO is expected to decide on an approach to the digital age by no later than Dec. 20.